Part 1 - AL-Tax

Chapter 1313.8 Conclusion: Big Brother is watchingThousands of US and Canadian customers, for example, of offshore banks arebecoming aware of the extent and consequences of the paper trails left by their foreigncredit and banking cards. The US federal courts have issued orders makingavailable to the US Internal Revenue Service the records held by offshore banksin relation to transactions within the USA by US citizens with mailing addressesin offshore jurisdictions. The US Internal Revenue Service has publicly statedthat the average person does not need to hold an offshore credit card and thatthere is a reasonable basis for believing that such cards are being used to evadepaying US taxes (IRS Offshore Credit Card Program, www.irs.gov).These court orders have been obtained in respect of the three major credit cardorganizations, American Express, MasterCard, and Visa. Similar court orders havebeen obtained against Credomatic, a credit card processor based in Florida, thatis the major processor of credit card transactions for banks located in theCaribbean tax havens.In addition, virtually all offshore banks require an account to be opened withthem before issuing credit cards. The balance of the account is used to secure thecustomer’s payment obligations under the credit card (deposits in excess of thecard limit are routinely required). Also, often when using those cards to make certainpurchases (for example, airline tickets, car rentals, cruise fares, and hotelbills), some form of identification will still need to be provided by the cardholder(as is the case for more conventional payment methods). By having to authenticatetheir identity, the cardholder is leaving a paper trail that will make it easier for therevenue authorities and anti-money-laundering agencies to trace transactions onthe credit card to the customer and connect the customer with the offshore bankaccount in which the hot, gray, or dirty money may have been deposited.Nor is the Internet as effective a shield to regulatory scrutiny as is commonlythought. The use of online banking, online payment systems, or Internet-basedremittance agencies all create paper trails (or, more accurately, electronic footprints)that can lead to the exposure of the would-be launderer. Even the use ofmasking software and proxy anonymizers may be of little assistance. For instance,the US Securities and Exchange Commission and FBI have been able to trace theproceeds of securities fraud through elaborate online money-laundering schemesand connect those proceeds to the perpetrator of the fraud. In addition, the USInternal Revenue Service has been able to obtain ‘John Doe’ orders againstPayPal, the online payment system, to obtain information about customers thathave been using PayPal to evade paying US taxes.321